When it comes to inheritance tax, the final amount due remains the same, but how the estate is divided is usually determined by the will. A will can specify that any property left to nieces and nephews is exempt from inheritance tax, meaning that the property can be passed on without the tax liability, while the remaining assets in the estate are used to pay the inheritance tax.
Reducing this tax liability depends on Mr. Orchard’s risk tolerance. He could simply gift assets to his nieces and nephews, but he would need to survive for another seven years for the gifts to be exempt from tax.
Another option for Mr. Orchard is to invest in shares in London’s junior stock market, also known as “Aim”. Many shares in this market qualify for business relief if held for a minimum of two years prior to death. However, these shares carry higher risk, which may not be suitable for Mr. Orchard given his age.
In this case, Mr. Orchard may want to consider a business relief fund or portfolio service, which are lower risk options that invest his money in other businesses qualifying for business relief.
Some services even offer insurance plans where, if Mr. Orchard were to pass away within the two-year period before the money becomes exempt, the insurance would cover the inheritance tax due on the investment value. Additionally, he would still have access to the assets if needed.
Furthermore, Mr. Orchard could set up a business relief trust in his will and name his wife as a beneficiary. This would allow his wife to borrow from the trust if she requires funds during her lifetime, without increasing the value of her taxable estate.
Lisa Caplan, a chartered financial planner at Charles Stanley, suggests:
The size of the inheritance tax bill in this scenario depends on how Mr. Orchard and his wife structure their wills. Assuming they leave everything to each other before passing on assets to others, the inheritance tax bill on their estate would exceed £140,000.
A potential solution to reduce the inheritance tax bill is arranging a deed of variation on the will, considering Mr. Orchard’s sister’s partner passed away less than two years ago. A solicitor would be needed for this process, given the complexity arising from Mr. Orchard’s purchase of his son’s half of the property. However, a solicitor would provide guidance in such matters.
The deed of variation would require consent from all beneficiaries and executors, with Mr. Orchard not necessarily being named as a beneficiary. Although the time limit for this is two years, if successful, it would significantly reduce the inheritance tax liability on Mr. Orchard’s estate.
Lastly, since Mr. Orchard has multiple sources of income, he can consider giving away any excess, but careful planning is essential in this matter.
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